But tracker borrowers with the Nationwide and some smaller building societies such as the Skipton and Yorkshire will not receive a windfall.

They have so-called 'collars' in their small print that will stop their customers' rates falling any further. In total up to 300,000 borrowers nationally, and about 45,000 in London, will be caught out.

A handful of major lenders including LloydsTSB, Cheltenham & Gloucester, HSBC and Nationwide said they would pass on the reduction in full in their standard variable rates. Other big high street names including Halifax, Abbey and Woolwich said their standard rates remained 'under review'.

For savers, particularly pensioners dependent on income from investments, the cut is yet another shattering blow.

The last savings product paying more than 5% has been withdrawn and almost half of accounts now offer rates of less than 1%.

Lenders warned that mortgage rates are now close to the bottom and that little, if any, of future base rate cuts will be passed on except to existing tracker customers. Stephen Noakes, marketing director at Cheltenham & Gloucester, said: 'We're now more or less at the bottom of the market and those looking to remortgage can take full advantage by locking in for as long as possible. We're offering a 10-year fixed rate to give customers maximum value in this low rate environment.'

Borrowers were advised to grab the deals currently available as they were likely to be the best for many years.

Andrew Montlake, a partner at independent mortgage broker Cobalt Capital, said: 'I suspect we are very close to the limit at which lenders can profitably offer mortgages. The products offered in the next few months could be the best we are likely to see in the current cycle.

'People who opt for a fixed-rate mortgage now could do very well, as interest rates will have to rise, perhaps as quickly as they have fallen, once we begin to exit the recession.'

Gloomy property experts said the latest cut would do little to stimulate the frozen market. Peter Rollings, managing director of London estate agent Marsh & Parsons, said: 'Banks simply aren't passing these cuts on. Interest rates mean very little if you don't have a large deposit. In London, house prices are still high enough that a 25% deposit is a fortune for a first-time buyer.'

Alan Tomlinson, a partner at licensed insolvency practitioners, Tomlinsons, said: 'For companies that are already struggling it will be of no real help. Many of the companies we are advising have fundamental problems such as sharp drops in turnover.'

High-income single earner

Hard decisions: Jay Manek can't decide between the stock market and the bank

Savings: £50,000 which are all in one savings account with First Direct Everyday E-Saver account. Interest rate on £1 and above of 1.75%.

Comments: 'I put away between £50 and £1,000 every month and have built up a nest egg of around £50,000. Originally I was going to use it to invest in property but I don't think it's the right time. I haven't been investing in anything because of the credit crunch and really feel like I am between a rock in a hard place.

'Shares are unpredictable but I have this cash reserve and now don't feel I can just leave it in the bank where it is not going to grow. I am going to be seeking advice on investments which are not risky and looking at investing the money in a bank abroad. My dad has been putting money in banks in India for years. You agree to lock the money in for one to two years but are guaranteed a 6% return.

'When I first opened my savings account three years ago it had an interest rate of 5%. I will be ringing them later to find out what it stands at now. I don't have any loans or credit cards to pay off. If I had, I would have used the savings to clear any debts.'

Family with a mortgage

The O'Connells: Shara, 34, Craig, 35, and children Maya, five, and Thomas, Three

Savings: £8,000 in Premium Bonds with National Savings, £900 savings in Saffron Walden and Leeds and Holbeck building societies

Comments: 'When we took our fixed rate mortgage in July (with Nationwide at 5.98%, it looked like rates were going to keep going up. Gordon Brown was trying to stabilise the housing market and we thought a fixed rate was the best thing for us. Unfortunately, the credit crunch hit and rates have fallen, which has hit us really hard.

It is incredibly depressing to think about just how much we would be saving if we had gone into a variable rate mortgage. Our mortgage would be down at about £1,500 a month, saving us at least over £100. That would make a massive difference as we have two small children and a big house to run. The financial crisis has meant we have had to dramatically cut our pensions. We now pay about a fifth of what we used to pay. It's a big worry because we don't have any savings.

'In the past we put money into savings accounts every month but had to use that on a new roof. Now we are saving nothing. Thankfully we have no debts as we are used to watching exactly what we spend. We do whatever we can to stick to our means, so we don't owe any money except on our mortgage.

'Once we get off our fixed rate in two years, we will start saving again. In the meantime, I'm going to try to get a one-year payment holiday from Nationwide, at least for one of the years we're on this fixed rate.'

Mortgage and property chat

Find out what readers are saying about mortgages, property and the housing market:

Comments: 'Half my income comes from my savings so I rely on them to live. The account where I keep most money has almost stopped making any money and it really worries me. I thought that money was going to last me a lot longer. But I don't want to compromise the lifestyle I've become used to. I try to save by switching on the heating for shorter periods.

'I've got some money in an ISA that has a high interest rate and wish I had more in accounts like that. The high rates don't exist any more. Luckily I paid off my mortgage last October so that's one thing I don't have to worry about. I don't blame the Government, it's a global problem.'